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The Effects of COVID-19 on Executive Liability

While the lasting effects of the COVID-19 pandemic have yet to be seen, the results of financial and operational decisions that organizations are making related to COVID-19 are beginning to have a significant impact on both Directors & Officers (D&O) Insurance as well as Employment Practices Liability. 

Prior to the pandemic, the D&O insurance marketplace was already increasing rates and reducing its appetite for risk exposure, particularly for publicly traded companies. The primary drivers were historically high federal securities class action lawsuits, as well as merger objection litigation and recent case law.

This “stress” has only been exacerbated by the pandemic; not only by the expected amount of claim activity from direct action or inaction with regard to COVID-19, but also from the expected flood of insolvencies and bankruptcies. The same can be said for Employment Practices Liability as companies continue mass layoffs. As a result, insurance companies are employing the following strategies with policyholders:

  • Non-renewing coverage for industries that were once considered low risk (i.e.  hospitality)
  • Increasing premiums
  • Offering reduced limits
  • Introducing bankruptcy, pandemic-related, and past actions exclusions
  • More stringent underwriting

In preparation for your upcoming insurance renewal, be prepared to address COVID-19 specific questions such as:

  • Has the company undertaken financial stress testing in response to this virus and the potential for long-term implications?
  • Does the company expect any issues with remaining compliant with their debt covenants for the next 12-18 months given the disruptions arising from the crisis?
  • Is there a buffer currently on debt covenants given the potential drop off in revenues and/or earnings before interest, taxes, depreciation, and amortization (EBITDA)?
  • Does the company have an effective Business Continuity plan that includes pandemics?
  • Has the board/senior management been meeting at least weekly to discuss this plan?
  • Have there been examinations undertaken around cyber security protections given the likelihood of increased home working?
  • Have you put protocols in place for employees who are or have been infected by COVID-19 or a similar virus, as well as ensuring they are not discriminated against?
  • Has the company been in communication with its lenders regarding waivers and/or amendments to accommodate any disruption to business?
  • Is there a uniform approach to employees working from home? Is this available to everyone? 
  • Has the company identified the sources of disruptions caused by the COVID-19 crisis that have impacted or are most likely to impact their business? If yes, is there a contingency plan in place?
  • Is there a review process in place to ensure protected classes will not be adversely impacted as a result of staff reduction? If yes, is the analysis reviewed by outside counsel?
  • Are you utilizing outside counsel and/or the Equal Employment Opportunity Commission's (EEOC) Families First Coronavirus Act guidance?

We are certainly in unprecedented times and we suggest you begin the renewal process early and advise your broker about any anticipated changes in your exposures. Please let us know if we can be of any assistance. 

 

About the Author

Phil Hausmann, CIC

Posted in: Property & Casualty, COVID-19

Posted by Phil Hausmann, CIC

Phil joined Hausmann-Johnson Insurance in 2010 as a Commercial Agent, and is a member of the Construction Industry Group. He is a graduate of Marquette University and has been immersed in the insurance industry ever since graduating. He spent the first four years of his career on the service side of insurance in the Excess and Surplus lines market. Outside of the office, Phil is active as board member of the UW Carbone Cancer’s Emerging Leadership Board as well as a board member for the March of Dimes. He also helps organize the annual YMCA golf outing.

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